Fujikura Kasei (TSE:4620) Is Increasing Its Dividend To ¥9.00

The board of Fujikura Kasei Co., Ltd. (TSE:4620) has announced that it will be increasing its dividend by 13% on the 4th of December to ¥9.00, up from last year's comparable payment of ¥8.00. This takes the dividend yield to 3.0%, which shareholders will be pleased with.

View our latest analysis for Fujikura Kasei

Fujikura Kasei's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Fujikura Kasei's dividend made up quite a large proportion of earnings but only 32% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Unless the company can turn things around, EPS could fall by 11.2% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 55%, which is an improvement from where it is currently.

Fujikura Kasei Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was ¥14.00 in 2014, and the most recent fiscal year payment was ¥16.00. This works out to be a compound annual growth rate (CAGR) of approximately 1.3% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Fujikura Kasei's earnings per share has shrunk at 11% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Fujikura Kasei will make a great income stock. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We don't think Fujikura Kasei is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Fujikura Kasei you should be aware of, and 1 of them is a bit concerning. Is Fujikura Kasei not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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